<p>Kraft lignin (KL) is released as a byproduct during the kraft pulping process used in the paper industry. During the process, KL undergoes substantial chemical transformations, becoming highly recalcitrant. Slow degrading KL has hazardous impact on environment due to its high croma, toxicity and chemical oxygen demand. Bacterial systems have received increasing attention for lignin degradation because of their biodiversity and environmental adaptability. In this study, ligninolytic bacteria were isolated from vermicompost based on their ability to grow using KL as sole carbon source and to produce oxidative ligninolytic enzymes, laccase (Lac), manganese peroxidase (MnP), and lignin peroxidase (LiP). Among them, <i>Klebsiella aerogenes</i> strain B6 exhibited the highest Lac, MnP, and LiP activities of 2.152, 3.571 and 0.728 U mL^− 1 respectively. Optimization of cultural conditions enhanced these activities to 8.333, 7.109, 4.161 U mL^− 1, respectively. B6 strain achieved 91% degradation of Remazol Brilliant Blue-R, as confirmed by Fourier transform infrared spectroscopy (FTIR) spectroscopy. It degraded 70% of KL during its logarithmic phase of growth (day three), which increased to 88.73% by day eight. Biodegradation of KL was assured by scanning electron microscopy and FTIR spectroscopy. Gas chromatography–mass spectrometry (GC-MS) analysis of biodegraded KL identified industrially valuable precursors, including fatty alcohols, mono-methyl branched chain fatty acids, ethers and isoalkanes. In preliminary biosafety analysis, biodegraded KL supported improved germination (92.5%) of mustard seedlings than untreated control (85%). This study suggests the potential role of <i>K. aerogenes</i> strain B6 in the biotransformation of recalcitrant KL into industrially and agriculturally valuable products, thereby mitigating the environmental impact of industrial lignin waste.</p>